The deal, in which Chery would supply Chrysler with Dodge, Jeep or Chrysler branded sub-compacts, would help Chrysler out of a hole: 70% of Chrysler's portfolio is in trucks.
The new vehicles, which would save Chrysler product-development and manufacturing costs, would also give the company entree to the European market. Chrysler said the deal, awaiting approval by the Chinese government, is expected to be signed next month.
The news comes after rumors that General Motors is mulling a buyout of Chrysler Group, which the company hasn't confirmed and which most analysts and market observers deride as somewhere between wrong-headed and disastrous.
As the company prepares to offer severance to 2,000 salaried employees this year, CEO Tom LaSorda last week tried to reassure dealers that the company was in it for the long haul.
As reported in Chrysler's official blog, LaSorda, on a conference call with dealers, said: "We have a strong future, and we are determined to bring the company to profitability as soon as possible.
"When you look at our plans for new products and new powertrains, I simply ask this: Do these sound like the actions of a company uncertain about its future? Obviously not."
The company says it will spend $3 billion in powertrain technology aimed at fuel efficiency and will bow 20 all-new vehicles and 13 refreshed models through 2009.
The first of these would be the Dodge Avenger mid-sized sedan, which goes on sale next month.--Karl Greenberg